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PENSIONS LITIGATION: An Introduction

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Although 2018 has continued to see a diverse range of issues in what is described as “pensions litigation,” the common theme running through all the headline cases are the enormous sums at stake and the appeals that have resulted.

Although the two, separate long-running cases involving the BBC and IBM were both finally brought to a close with decisions of the Court of Appeal in mid-2017, the Court of Appeal has continued to be busy with pensions in the form of the cases of Barnardo’s, Safeway, Shannon v Viavi and British Airways – with BT due to be heard in October 2018. The Supreme Court has not missed out either, with Walker v Innospec and Barnardo’s, and who would bet against one or more of the others going the same way?

So what is all this litigation about? 

RPI/CPI 

Encouraged by criticisms of RPI as a measure of inflation, employers in the private sector have continued to be tempted by the potentially vast reduction in liabilities that can be achieved by a switch from using RPI to CPI for pension increases.

Despite losses before the High Court and the Court of Appeal, where it was ruled that there was no power to switch to CPI so long as RPI remained an officially published index, the Supreme Court heard Barnardo’s appeal in June 2018. BT’s appeal covers similar territory, although time will tell whether there are important differences – the key issue in that case being whether RPI had “become inappropriate.”

This may all sound like angels dancing on the head of a pin, but it matters a great deal. For all the potential benefit to employers through the reduction of their pension schemes’ liabilities, there is a potentially equal collective detriment to the members of those pensions schemes. And even a Supreme Court ruling is unlikely to halt the wave of cases on this subject as the ability to make such a switch turns upon the particular provisions of each pension scheme’s governing documentation, of which there are many variations.

More active employers 

Employers’ efforts to rein in their pension liabilities has not stopped at a switch in inflationary indices. The BA litigation concerned the trustees’ amendment of the pension scheme’s rules (using their unilateral power of amendment) to introduce a new power allowing them to pay discretionary increases on top of those already provided for by the scheme. The trustees subsequently used the power to pay a discretionary increase to members’ benefits, resulting in BA’s legal challenge.

Safeway’s appeal concerns the well-trodden subject of sex discrimination and the obligation to equalise normal retirement ages for men and women. After years of litigation on this issue, Safeway’s appeal has resulted in a reference to the European Court of Justice to determine whether the power to retrospectively amend the pension scheme to equalise normal retirement ages was prohibited by the EU principle of equal treatment. Whilst the outcome of case may have limited relevance for many other pension schemes, it is sure to be of huge significance to Safeway and its pension scheme’s members.

Other problems coming out of the (Wedg)wood-work

Unwelcome technical problems have continued to provide challenges to lawyers and headaches for employers and trustees. Following the demise of Wedgwood’s business, its pension scheme commenced winding up but there was uncertainty over whether a termination notice given some ten years earlier was legally effective to stop further accrual and break the link to members’ final salaries. The High Court provided what was a rare win for an employer (or, in reality here, the Pension Protection Fund that was providing members’ benefits).

Other examples of cases that explored the legal effect of historic events included Shannon v Viavi, where the Court of Appeal took a rather pragmatic approach to the formalities associated with substitution of the employer that had taken place some 15 years earlier, and BIC, where the High Court considered the legal effect of decisions taken in 1991 and concluded that the increases awarded were valid.

We have also continued to see the High Court being asked to rectify pension scheme documentation to correct imperfect historic drafting. Recent developments have seen an increasing number of rectification cases being dealt with by way of summary judgment (often without objection) as the parties adopt a more pragmatic approach to such issues.

The Pensions Regulator – “clearer, quicker, tougher”?

Perhaps most high-profile of all pensions litigation over the period has been enforcement action from the Pensions Regulator (TPR). In response to a wave of criticism in the course of the Select Committee investigations into BHS and Carillion, TPR has published its new mantra and some of the results it has achieved from its adoption.

These included a settlement totalling £363 million with Sir Philip Green in relation to BHS, and the issuing of a raft of penalties for failure to comply with a variety of statutory requirements. TPR’s hard line in relation to the Samuel Smith pension scheme was issued as a warning to others not to expect leniency where TPR’s warnings and the deadlines for review or appeal are ignored.

TPR has also had success before the Upper Tribunal in its long-running efforts to obtain a “financial support direction” in relation to the Boxclever pension scheme. Having been criticised for historically not doing enough to exercise and get judicial clarity around the application of this power, the detailed judgment from the Upper Tribunal provides helpful guidance. Whether it will remain the final word remains to be seen.

We are yet to see TPR formally exercise its scheme funding powers to impose a tougher regime for employers to meet their liabilities than those agreed with the pension schemes’ trustees. But it is beginning to intervene more forcefully, with TPR substantially increasing its number of active cases, so it is surely only a matter of time before we will see litigation on this front.

What next? 

The increasing pressure on employers to bring their pension liabilities under control whilst maintaining a thriving business (or, for some, just trying to survive) will undoubtedly lead to further litigation. Some might appear to be less confrontational, where the aim is to seek clarity as to whether a proposed action is legally permissible. Other litigation will be as aggressive as anything that the Royal Courts of Justice see in any other arenas. But all will involve the highest calibre of representation because the issues are complex and the amounts at stake are of the highest order.